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Will Penalties Really Force PG&E Into Bankruptcy?

Ahead of the California Public Utilities Commission’s decision later this year on how much PG&E (PCG) should be fined for the September 2010 gas pipeline explosion in San Bruno, California that killed eight people, questions are being raised about the financial future of the state’s largest utility.

The price tab that has so far been discussed puts the fine for safety lapses that led to the disaster at $2.25 billion. In an interview on Tuesday, Company CEO Tony Earley said that the $18.9 billion market-cap company could file for bankruptcy for the second time since the new millennium if it ends up being unable to raise enough money by making more shares available.

Earley noted that “A $2.25 billion penalty would bring PG&E’s total tab for the disaster to $4 billion, including money already spent on pipeline upgrades and safety work,” and claimed that the company already has spent or intends to spend upwards of $2 billion on fixes.

The tab for desperately needed infrastructure upgrades throughout the US is estimated at a gigantic $1.5 trillion, and would affect a whole variety of companies and property, public and private. But PG&E’s attempt to portray itself as a victim of unfair punishment should be taken with a grain of salt. The company is only being fined $300 million for the safety violations, with the rest destined for the actual upgrades, which will in the long-run help consumers and the company itself.

Indeed, financial analysts from Wells Fargo Securities and BCG Financial LP have said that the company will most likely survive the penalties through the selling of more shares, suggesting that the threat of a bankruptcy filing could be more of an attempt at cost-cutting rather than a legitimate concern about the life and death of the company.

Shares for PG&E were down nearly 2 percent to $41.96, and have advanced nearly 9 percent over the past 12 months.

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